Lenders block home-equity line withdrawals

Several banks issued statements this week that they are
temporarily suspending withdrawals from home equity lines out of
concern that borrowers could owe more than the house is worth.

Historic declines in property values have stripped many
homeowners of their safety nets as lenders freeze lines of credit
-- even on people who are current on their mortgage payments.

"It really wreaked havoc for me," said Dan Holbrook, a Fallbrook
homeowner. Working in the real estate industry, he is often paid in
lump sums.

At the end of the year, Holbrook paid off his equity line with a
$50,000 payment. Four days later, Bank of America froze his equity
line, he said.

"I'm scrambling right now," he said. "It has created a
tremendous amount of stress because that was money to live on for
me."

Home equity lines of credit are loans that use a home as
collateral and allow the borrower to withdraw money up to a maximum
limit.

Those lines are drying up as Countrywide Financial announced
Thursday that it has cut off 122,000 borrowers from pulling any
more equity out of their homes. Wells Fargo, Washington Mutual and
JPMorgan Chase released statements Friday that they have also
started halting equity lines because of tumbling home values, but
declined to provide any numbers.

One of Countrywide's 122,000 is Patti Lien of Menifee. Unlike
Holbrook, she did not rely on her home equity line as a source for
daily expenses. But she said the loss of her equity line was
nonetheless an upsetting shock because she thought it could cover
unexpected medical expenses or other emergencies.

"It's an emotional hardship," she said. "We kept our credit
good. We've done everything right, and this is what we get because
Countrywide made all these crappy loans."

Lien said she has a 30-year fixed mortgage and has never missed
a payment.

Holbrook, a real estate consultant, said most people view such
loans as emergency-only money. That is how he viewed it until the
housing market slowed, he said.

"A lot of people figured these equity lines were safety nets,"
he said. "The problem is many of us are on a high-wire act right
now. And you think the net is there, and you fall and it's
not."

Banks freeze the equity line to avoid lending more money than
the property is worth because if the house then goes into
foreclosure, the lender is unlikely to recoup the value of the
loan.

Mortgage brokers said lenders are especially cautious about
property values on equity lines because they generally act as
second mortgages. When a home goes into foreclosure and sells for
less than the loan amount, the lender on a second can get nothing
on the loan because the original mortgage must be repaid in full
first.

"Home equity line lenders are getting their butts kicked these
days," said Dave Hopkins, a senior loan officer with Rancho
Financial Mortgage, a brokerage firm based in Rancho Bernardo. "So
(freezing equity lines) is helping them quite a bit in reducing
their exposure. It's not good for the borrower, but on the lender
side, it makes sense."

The banks' reactions follow a 17-month drop in San Diego County
home values, according to a Standard and Poor's report. And many
analysts expect them to continue declining.

Riverside County has also seen falling home values, with some
losing almost half their value, said Phillip A. Bellante, owner of
Guardian Mortgage and Realty, a San Diego mortgage broker.

"I can show you areas in Murrieta and Riverside that have gone
down 40 percent," he said. "And is it going to go down more? Yeah,
it is."

JPMorgan Chase has been focusing on homeowners with loans that
are close to the value of the home, said Tom Kelly, a spokesman for
the lender. He said the lender is primarily concerned with
preventing the borrower from owing more than the home is worth.

A statement released by Wells Fargo said that the lender has
increased the frequency of regular case-by-case reviews of
homeowners' credit ratings and property values to determine whether
a line of equity should remain open.

When a homeowner signs the contract for a line of equity,
lenders usually include language that allows them to close the line
in response to changing factors.

Lien said she knew of the language, but thought it only applied
to homeowners who encountered credit problems and did not know an
external factor such as declining property values could put a stop
to the loan.

"It's a hardship. It's money that we thought was there and it's
not," she said. "We didn't go on a cruise, we didn't buy new cars
but we're still suffering because of others."